Pound climbs as Bank of England signals interest rate decision split

Adam Parsons, Business Correspondent

The pound has climbed after Bank of England officials voted to leave interest rates on hold but signalled that some may start to argue for an increase soon.

Rates were left at the historic low of 0.25% after the Bank's nine-member Monetary Policy Committee voted 8-1 for no change - hours after the US Federal Reserve voted for its latest rate hike.

It was the first time for eight months that there had been a split decision.

MPC member Kristin Forbes voted in favour of raising rates by 0.25%, citing fears about inflation. It was the first time since January 2016 that a member of the MPC has voted in favour of pushing rates up.

The pound was up by nearly a cent against the US dollar at a little below $1.24 and also made gains against the euro.

Minutes of the latest MPC meeting revealed that some other members of the committee appeared to be moving towards Ms Forbes' view.

Some felt it would take "relatively little" signs of stronger growth and higher inflation for them to consider a "more immediate reduction in policy support" - code for the low-rate stimulus policy that has helped nurse the UK back to health since the financial crisis.

Ross Walker, an economist at Royal Bank of Scotland, said: "It's definitely a shift.

"It takes us to a point where there will probably be more dissent sooner than expected."

Charlotte Hogg, the deputy governor who was forced to resign earlier this week, kept her place on the committee for this meeting.

She voted to maintain rates at a quarter of a percent, as did governor Mark Carney.

The Bank said that inflation was likely to continue rising from its current rate of 1.8% to reach a peak of 2.75% early next year. It is then predicted to slowly decline back towards 2%.

That is the figure targeted by the Bank as being healthy for the UK economy and, under normal circumstances, the Bank would be likely to respond to rising inflation with an increase in rates.

However, the minutes for this latest meeting see members eyeing a dangerous trade-off between curing inflation and harming the economy.

"Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth," they said.

The decision comes hours after America's Federal Open Markets Committee voted to raise its interest rate by 0.25% to a guidance level between 0.75% and 1.0%.

Chairwoman Janet Yellen said this offered a "simple message" that the economy "is in good shape".

Few expected the UK central bank to follow suit. Traders had factored in a virtual 0% chance of a rate rise. They were proved correct.

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